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Discussion Starter · #1 ·
An advisor has suggested that I may want to consider no longer contributing to RRSPs and to focus on non-registered investments. The though being is that the money may eventually be taxed at a higher rate based on other investments we have. There are so many factors in play I'm not really sure what to do but I have become a bit addicted to the tax refunds from RRSPs. Here are some number to put this into context:
-Wife and I are both 44 (Plan to work 2-5 more years, but who knows)
-RRSPs ($900k)
-Business Investment Account ($2million)
-Non Registered Investment ($360K)
-TFSA ($200K)

Thoughts?
 

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It's a question of what your income is now vs what you expect it to be in retirement. If you think your income will be higher in retirement, then don't do RRSPs. If you think it will be lower, then it's likely a good idea to continue doing them.

To think about your retirement income, think about all the pensions you expect to receive, mandatory RRSP minimum withdrawals, and non-reg cap gains/dividends. And anything else you might be getting. Don't know how it works with a business account but if withdrawals from that count as income, then that's income as well.
 

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What Spudd said, you need an idea of your income/expense levels when you retire in 2-5 years. Assuming you'll drain the RRSP account down for ~20 years before CPP,OAS and forced % RRSP withdrawal you might be ok. You can also continue to feed the TFSA with RRSP (providing it makes sense and you have extra money) during those early retirement years. Bottom line, without numbers (real and/or estimated) there is no way of knowing.
 

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If you think your income will be higher in retirement, then don't do RRSPs.
Also keep in mind that the tax brackets are inflation adjusted, so you have to make more adjusted for inflation in retirement to lose out. That seems even more improbable. It is certainly possible that at 44 you could earn more at 50 making the tax credit worth more. But it would mean giving up on those years of tax free growth. My instinct is that if the tax credit looks juicy, then just do the contribution. The chances that it will wind up not to have been the best approach at some later date are slim in the extreme.
 

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This is a question for your accountant along with your financial planner. You need to determine how much income you want to withdraw yearly, and then the best way to do so in order to max out your benefits and see if you can still get OAS when 65. With your business account, you should have more flexibility, but will need to run the numbers to see how it works.
 

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Would help to have a little more context. The rate you will pay on eventual withdrawals from the RRSP will be your marginal rate at that point in the future. Perhaps the advisor is trying to say a capital gain would be taxed at a lower rate (1/2 the marginal rate) outside the RRSP?
 

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Discussion Starter · #10 ·
Thanks everyone. I'll need to talk to my advisor more but I think he feels that based on the accumulation in business that I could end up having more income in retirement and therefore be taxed at a higher rate then during the working salary earning years. It may also have been about the capital gains being taxed at lower rate outside RRSP.
 

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Thanks everyone. I'll need to talk to my advisor more but I think he feels that based on the accumulation in business that I could end up having more income in retirement and therefore be taxed at a higher rate then during the working salary earning years. It may also have been about the capital gains being taxed at lower rate outside RRSP.
Uh? The only mandatory withdraw in your accounts will be from the RRSP when you hit 71. Your other accounts (TFSA, Business, Personal) the withdraw is optional. So outside the RRSP, you can set your de-accumulation rate as you see fit. From a tax perspective the RRSP and Business Account (with business paying slightly more over time due to the rules from 2018) will be roughly the same tax paid based which is based on your marginal tax rate. Looking at your gross number of 3.460M retiring at 50 your annual spend according to the VWR would be in the second highest bucket (>$155,625 up to $221,708) already....congratulations! More than likely that 3.4 is going to move to higher by the time you pull the plug. You cannot escape the tax man....
 

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It will depend on how your RRSP is managed. If you have a broad market index (like VFV or VCN), don't balance, and don't trade, I would stop contributing now, unless it can possibly knock you down a bracket. It can be helpful to not contribute for a couple of years until you have enough room to get into a lower bracket.

So, I am conditionally (probably) agreeing with your advisor (who is most likely an "adviser").

It definitely warrants some modeling. Your advisor may well have already done this, putting them at an advantage over this group.
 

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Thanks everyone. I'll need to talk to my advisor more but I think he feels that based on the accumulation in business that I could end up having more income in retirement and therefore be taxed at a higher rate then during the working salary earning years. It may also have been about the capital gains being taxed at lower rate outside RRSP.
Get the advisor to run a financial plan that demonstrates his recommendation with logical assumptions and hard numerical analysis. If he or she will not do that they are most likely an investment sales rep, not an unbiased, independent financial advisor.
 

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I had the same thing happen several years ago (15-20). Our Accountant suggested we stop contributing to RRSP's, as it would end up being taxed at a higher rate in retirement after selling/winding down our business and living off dividends. We are still going to have to turn RRSP's to RRIF's in another few years. I did bring it up with another accountant after we relocated and mentioned that we have a lot of room in RRSP's but got a similar recommendation to not contribute. But now I think it's more because most of our income is from dividends and not needing the RRSP contribution to lower them ? I asked last year whether we should just start withdrawing RRSP's now but the recommendation was to not contribute more. I'm not sure how it would have played out if we had been unable to liquidate the business prior to retirement but, I suppose we would have had to continue operating and generate income that way. I think there are many different scenarios in play and ultimately it's about the most tax efficient solution in each case.
 

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Why don't you speak to your financial advisor about one of these strategies?

1) the RRSP meltdown;
2)
3) set up a family trust and put your RRSP, and investment accounts in it.
4) consult with KPMG about offshore shell companiess
 

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This is the second time in three days that you have linked to this video.

The last time, @Eclectic21 pointed out it promotes a dubious strategy that may be offside with the CRA.
Yeah, I just saw it. Thanks.


I should post the warning directly into the comment section of the video.
 

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Discussion Starter · #18 ·
(who is most likely an "adviser").
Had to google the difference. For anyone that doesn't know:

Various government securities acts spell out the responsibilities of “advisers” to their clients. Meanwhile, the investment industry commonly calls their salespersons “financial advisors” even if they are not registered to act as advisors. At the Small Investor Protection Association (SIPA), we have seen a danger to investors in placing their trust and savings with sales people instead of advisors who have a fiduciary responsibility to act in their client’s interests.

A few years ago the Canadian Securities Administrators (CSA) confirmed to SIPA that “financial advisor” is an “unregulated business title” that can be used by anyone.

Credit: Do you have a financial advisor or adviser? - MoneySense
 

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Had to google the difference. For anyone that doesn't know:

Various government securities acts spell out the responsibilities of “advisers” to their clients. Meanwhile, the investment industry commonly calls their salespersons “financial advisors” even if they are not registered to act as advisors. At the Small Investor Protection Association (SIPA), we have seen a danger to investors in placing their trust and savings with sales people instead of advisors who have a fiduciary responsibility to act in their client’s interests.

A few years ago the Canadian Securities Administrators (CSA) confirmed to SIPA that “financial advisor” is an “unregulated business title” that can be used by anyone.

Credit: Do you have a financial advisor or adviser? - MoneySense
Sure sounds more like one needs to look for a registered fiduciary and not be concerned about "advisor/adviser" spelling.
 

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Discussion Starter · #20 ·
The advisor has run some financial scenarios in the past that show draw downs. I'll have to go back and take a look but I'm pretty sure it doesn't spell out any tax efficiencies but I will talk to advisor more about it before I decide to contribute this year. Getting feedback from a group such as this helps me be a bit more prepared when it comes decision time.

My RRSP advisor has the following letters BA, CIWM, FMA, PFP, not sure how much time or effort it is to get these, my other stock picker guy is a CIM. My neighbor is a FCSI, CFA (sounds good?) but he gives me very little advice outside of buy low and sell high, of course sometimes he finds it hard to find his way back home after we've been drinking and fixing the worlds problems by the fire.

If the financial industry is anything like engineering I don't trust anyone based on their designations alone. I've worked with PHDs and guys with Engineering Masters Degrees that only know how to talk about doing work and can't actually do anything or even add anything constructive. On the other side I've worked with Electricians that understand more then most engineers.

Disclaimer: I'm not belittling anyone that is proud of the letters after their name.
 
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